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High deductible plans for those with chronic conditions

February 14, 2011 at 9:47 am

Aaron Carroll

One of my regular complaints about the blunt instrument of cost-sharing is that it works great for healthy people, but terribly for sick people. For healthy people, it makes sense – you want healthy people to avoid care they don’t need and so economically incentivizing them not to get it is a great idea. But sick people – people with chronic conditions – we want them to get care. Therefore, economically incentivizing them not to get it is a bad idea.

High-deductible health plans—typically with deductibles of at least $1,000 per individual and $2,000 per family—require greater enrollee cost sharing than traditional plans. But they also may provide more affordable premiums and may be the lowest-cost, or only, coverage option for many families with members who are chronically ill. We surveyed families with chronic conditions in high-deductible plans and families in traditional plans to compare health care–related financial burden—such as experiencing difficulty paying medical or basic bills or having to set up payment plans.

Before we get into the weeds, here’s the difference between high-deductible and traditional plans:

For this study we defined high-deductible health plans as plans with annual family deductibles of at least $1,000, with or without a savings option. The Harvard Pilgrim high-deductible plans studied had family deductibles up to $6,000 per year. Services subject to the deductible included emergency department visits, diagnostic tests, hospitalizations, and therapeutic procedures such as physical therapy.

In most plans, office visits were subject to a $20 copayment and were excluded from the deductible. Prescription drugs were also exempt from the deductible and subject to copayments. In high-deductible plans eligible for health savings accounts, nonpreventive office visits and prescription drugs were subject to the deductible. Preventive services were covered at no cost.

The maximum amount enrollees were required to pay out of pocket for health care ranged from $4,000 to $10,000. Health reimbursement arrangements or health savings accounts were available but not offered by all employers.

The traditional plan group consisted of plans that did not have a deductible. These plans had office visit copayments ranging from $5 to $25, emergency department visit copayments ranging from $0 to $100, full coverage for preventive care and diagnostic tests, and limited cost sharing for hospitalizations. Most had out-of-pocket maximums of $4,000.

So high-deductible plans require spending at least $1000 (and up to $6000) out of pocket to get tests, hospitalizations, ER visits, and more. In addition, there were co-pays for other things. This isn’t uncommon. The whole point is to try and make you “feel it” more when you get care, so that you get less of it. The traditional plans, on the other hand, had no deductible. Cost-sharing existed, but out of pocket-spending was less, and was capped at a lower amount.

The purpose of the study was to compare the financial burden of people with chronic conditions in the two types of plans. What did they find? (I made the following chart from their data.)

Even after adjusting for other factors, a family with a member with a chronic condition was about twice as likely to report a financial burden if they were in a high-deductible plan than in a traditional plan. This was true whether the family was well-off or making less than 400% of the poverty line. For families making less than 400% of the poverty line (many of whom we would not consider poor), 60% of those in high-deductible plans reported having a financial burden. More than half of those families reported that out-of-pocket health care expenses were more than 3% of their income.

I’m not denying that the economic incentives of cost-sharing work. I’m not denying that high-deductible plans are cheaper than traditional plans, and so would allow more people with limited means to buy insurance. As I noted last week, however, there is a lot of fuzziness in what we all think of when we define insurance.

Me? I define insurance to mean the ability to get needed care without fear of financial hardship or bankruptcy. High deductible plans allow many people to say they have insurance, but if illness still causes you financial hardship, or leads to bankruptcy, I believe you are underinsured.

The disagreement here is that health insurance is the same as any other insurance. If you are a bad driver, for instance, your insurance costs more, or you accept a plan with a very high-deductible. Some of you think the same argument should apply to health care. But as one of the millions who has a chronic disease which is not my fault, I don’t agree. Moreover, unlike some people who could learn to become better drivers, I cannot lose my chronic illness or medical history.

So I’ll say it once again. I think that shifting more and more people to high-deductible plans as a blanket solution to our health care system’s ails is a bad idea. It will result in much cheaper rates for healthy people and may seem like a great idea initially. But it will likely cause harm to sick people and people with chronic conditions, the very people I’d argue the health care system is for. There’s likely a place in the health care system for the use of cost-sharing as an economic incentive, but I don’t think it should be the overall philosophy.

*Full disclosure – one of the authors is a close, personal friend of mine. I won’t embarrass the person by saying which one, but you should all know the conflict exists.

The whole point is to try and make you “feel it” more when you get care, so that you get less of it.

1. Less care is not the whole point. Part of the point is get people to shop for price which could lead to big savings.
2. In a world where most people have high deductibles society may build up norms that encourage people to get the care that they need early to avid worsening their conditions and spending more in overall.
3. You might like my plan with deductibles based on income. http://un-thought.blogspot.com/2009/09/healthcare-compromise.html
Surely a high deductible system could be devised that could help the poor even while encouraging the wealthy and middle class to shop for price, care for themselves more and avoid very low benefit to cost care.

Floccina… where do you find information about the cost of care? When you’re in the back of the ambulance heading to the nearest hospital? Or, less urgently, online? By calling doctors’ offices? Have you ever tried? I have… and I have for patients and it’s pretty darned close to impossible to find any price info except at community health centers.

The problem with the ‘people should shop around’ argument is that there’s absolute non-transparency in health care pricing.

I’d be much more in favor of high-deductible plans if hospitals and doctors were required to post price lists by procedure and diagnosis (or some other criteria) online or somewhere equally accessible so that people could shop around and compare. But I don’t see that happening any time soon.

The problem is there are too many players trying to game the system. Some of them are patients. All of the insurance companies do it – they practically wrote the rules and keep re-writing those rules to maximize profit. Then they routinely deny valid claims knowing that the average patient doesn’t have the knowledge or the resources to fight back. They sell a false “peace of mind” knowing that if a patient needs time in an ICU that the number of days allowed in the contract will almost always be insufficient, leaving the burden of cost on the patient’s family, on the providers, and on taxpayers.

Quite a few are providers themselves who try to pull every trick in the book to deceive customers (er ‘patients’) into getting tests that they don’t need, getting out-of-network services that have no caps on what the patient is billed, kickbacks from referrals to other providers or facilities, kickbacks for prescribing a particular drug, or by adding services without consent, which is very common during surgery when the patient isn’t even conscious to refuse. They absolve themselves of any malintention by saying that it’s not their responsibility to understand how insurance works, or that they have to order extra tests since they need to practice “defensive medicine” to avoid litigious claims from bitter ex-patients if they fail to discover something important.

I once had an in-network doctor that tried to bill me directly for $30k because his “facility” was out-of-network – for a simple 45 minute procedure that commonly costs about $600. When he tried to negotiate down to $7k I told him to tell it to the judge when I present evidence of fraud (there’s more to the story than I have time for here).

In the end, the HDIPs will hurt providers because the new poor patients signing up won’t be able to even pay the deductible. So the doctors will get stiffed by the insurance company and the patients unless the procedure is very expensive. As things stand today, doctors are not allowed to negotiate price with insured patients to help patients who could afford to pay some, but not all, of the uncovered portion of the costs.

Doctors and patients would be better served by either a single payer system or a two-tier public/private medical system. The two-tier system would allow insurance companies to stay in the game since middle class and wealthier patients might want the choice to seek care from providers who might be able to provide services that are perceived as better than what’s available at public hospitals, such as shorter wait times, more comfortable facilities, or epidural during child birth (many don’t know that medicaid doesn’t pay the cost of epidural for child birth – probably with the intent to discourage ‘repeat offenders’).

where do you find information about the cost of care? When you’re in the back of the ambulance heading to the nearest hospital?
Most care in not that much of an emergency. You have trouble getting prices now but most people now have low deductible insurance so providers are less motivated to publish prices (it maybe a chicken and egg problem).

ALSO:

One other reason for high deductibles is that with costs less hidden people might vote a more flexible licensing.

I am not sure that higher deductibles will be much better but it seems worth a try to me. I especially like higher deductibles for more capable people. I present a plan where low income people get low deductibles.

This does not seem like a very good study. Of course it is harder to pay medical bills under a high deductible plan. That’s part of the point.

The question is whether that extra payment is made up for by the lower premiums. That question does not seem to be answered in the study. In fact, the authors deliberately excluded premium costs from their measures of financial burden. This is misleading.

1. I have a $5,000 deductible policy and in my experience when doctors know that you will pay out of pocket they change their treatment suggestions offering cheaper options. So providers themselves may do some of the cost cutting because IMO most are good people and care for their patient’s pocketbooks more than for insurance companies pocketbooks. Providers might drive the cost cutting. Human motivations are complex.

2. People with high deductibles can get on payment terms which motivates providers to focus on keeping the patients alive and healthy because it is better for collections.

Sorry for all the posts but I just thought of another point: In a world of very high deductibles providers might worry about their reputations if they charge to high prices for emergency or other work. People might talk like “don’t go to that provider they charged me an arm and a loge for x treatment”.

Sorry again, but another thing is that some care is not much more than baby sitting. Baby sitting that family members could do if compensated but if insurance is paying some will leave their loved ones in a hospital or long term care facility because the family member will not be compensated.

All of this discussion misses the long-term benefits of high-deductible plans, which would be that the (eventual) price shopping and price transparency would be an incentive for providers to compete on price. When price is the basis of competition, innovators start devoting more energy and resources into developing lower-cost methods of achieving the same quality care. These are the new technologies and business models that have the power to actually affect the healthcare spending trend rather than just the spending level.

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